Strategy Note /

Fintech funding is growing strongly in 2021: Key emerging markets trends

  • Global fintech funding hit US$54bn in H1 2021, 24% higher than the whole of last year. Growth in EM was even stronger

  • Payments fintechs receive the lion’s share in EM. Brazil is also doing well. Egypt, Pakistan, Saudi, UAE growing fast

  • China fintech funding grew in H1 but is well off its 2018 peak. India attracted 50% more funding than China in H1

Fintech funding is growing strongly in 2021: Key emerging markets trends
Rohit Kumar
Rohit Kumar

Global Financials/Thematics

Rahul Shah
Rahul Shah

Head of Financials Equity Research

Tellimer Research
7 September 2021
Published byTellimer Research

2021 has already been a stellar year for fintech funding; H1’s global total is 24% higher than the whole of 2020, with Europe and Latin America seeing the strongest growth. In emerging markets, growth has been even stronger, with H1 2021 exceeding FY 2020 by 69%. Payments fintechs and Brazilian fintechs dominate the top EM funding deals so far this year.

In this report, we discuss recent fintech funding trends (at both the global and emerging markets levels), with a spotlight on the leading emerging markets transactions. We also revisit the results of our proprietary emerging market fintech funding survey.

Global fintech funding trends so far this year

2020 global fintech funding was flat year-on-year, but 2021 has shown strong positive momentum. Venture capital-backed fintech funding totalled US$54.4bn in H1 2021, according to CB Insights, 24% higher than the US$43.8bn recorded in full-year 2020. KPMG provides slightly different numbers, with an H1 2021 total of US$52.3bn, representing an 18% increase on FY 2020’s US$44.4bn. But the overall conclusion is clear: 2021 is going to be a standout year for fintech funding.

Global fintech venture capital funding

By geography, funding to all regions has grown in H1 2021, with Europe and Latin America seeing the strongest acceleration and Australia lagging.

Quarterly fintech funding by continent

Emerging markets fintech funding trends

Switching our focus to emerging markets, funding growth has been even stronger, with H1 2021 volume of US$7.6bn coming in 69% higher than full-year 2020, and c4x bigger than H1 2020 numbers (lower activity due to Covid 19). Note that these numbers are based on funding deals data by Crunchbase in 20 selected emerging markets.

Emerging markets fintech funding trend

Emerging markets top deals

In the table below, we summarise the 12 largest deals of H1 2021. By geography, Brazil dominates the list, with c40% of funding value, largely thanks to Nubank’s US$1.1bn Series G funding round. By fintech sector, payments hold the top position, with over 40% of the total funding value within this list; Brazil’s EBANX was the top transaction in this sector.

Top 12 fintech funding deals in emerging markets

Key trends in emerging markets

Below, we summarise key takeaways from recent emerging markets funding trends.

1. Latin America is seeing growing interest; Brazil dominates the mix

VC-backed funding to Latin American fintechs has been consistently growing, with H1 21 funding clocking in at US$4.2bn compared with US$2.8bn in full-year 2020 and US$1.9bn in 2019; the 5-year CAGR for the region is 83%.

Latin America fintech funding

Within the region, Brazil attracts the lion’s share of funding (70% during 2016-21) while Mexico ranks second, attracting 17% of total funding flows.

Latin America fintech funding mix

2. Payments continues to dominate the top funding deals in EM

The payments sector has traditionally attracted the highest share of funding volume. H1 2021 continued this trend; 60% of the largest funding transactions were in the payments sector. Blockchain is generating increasing interest, however; a quarter of the top deals are in this sector, with a 16% share of funding value.

Sector mix of top 12 fintech funding deals in EM

3. China funding grows but still well below the recent past

China dominated the fintech funding mix in EM in the pre-Covid era, but the country’s share has declined considerably since then. That said, and despite recent regulatory/political headwinds, funding numbers appear to have improved in H1 21 (US$1.4bn) compared with 2020 (US$1.9bn in full-year 2020 and US$1.0bn in H1 2020). In our view, investment returns in China may lag those of other emerging markets, due to a less favourable growth/valuation profile. But the country’s leadership in key areas, such as blockchain, will continue to attract investor interest.

China fintech funding

4. India attracted 50% more funding than China

India’s fintech scene is picking up pace and attracting greater interest from fintech investors. H1 2021 funding (including M&A deals) was US$2.0bn, c50% higher than for China. This compares with US$2.3bn funding India attracted in full-year 2020 and US$1.6bn in H1 2020.

India overtook China as the #1 EM fintech funding destination in 2020

5. Pakistan, Egypt, Saudi Arabia and UAE picking up pace in small EM

Focusing on the smaller emerging markets, we note that some are starting to generate increasing investor interest:

Pakistan attracted just US$10mn in 2020, while we estimate it has already attracted cUS$30mn this year. Sizeable funding rounds include SadaPay (US$7.2mn), TAG (US$5.5mn), KTrade (US$4.5mn) and Abhi (US$2mn).

Egypt fintechs attracted US$15mn funding in 2020, which is just 8% of total VC funding in the country (compared with 18% fintech share at the global level). There have been some notable deals in 2021 so far, pointing to strong growth over the past year. Some big-ticket deals include Paymob (US$15mn), Telda (US$5mn) and Dayra (US$3mn).

Saudi Arabia saw its first US$100mn+ funding round as Tamara (a Buy Now Pay Later company), raised US$110mn this year. The country attracted total fintech funding of US$137mn in H1 2021 compared with just US$5.6mn in 2020.

UAE also saw an increase in fintech funding during H1 2021, clocking in at US$65mn versus US$63mn in FY 2020 and just US$15mn in H1 2020. Some big-ticket transactions so far in 2021 include Tabby (US$50mn) and Now Money (US$7mn).

Fintech funding trend in Saudi Arabia, UAE and Pakistan

Funding is an essential driver of fintech success

Our EM industry survey, which covered 101 fintechs across seven countries, indicated that funding is one of the main success factors for fintechs, coming only after first-mover advantage. It is more important for fintechs in Indonesia and Mexico and for those operating in the blockchain and lending segments.

Fintech success factors

Funding can help mitigate hurdles to fintech growth

Our survey indicates that capital requirements are the top regulatory hurdle faced by fintechs, particularly those in Brazil, India and China and those in the insurtech and investech segments.

Funding is also cited as the third most important growth constraint for fintechs, after market dynamics and competition from the informal sector.

Fintech regulatory hurdles